Photos: Neiman Marcus; Saks Fifth Avenue
Mudrick Capital Management, a hedge fund and creditor to Neiman Marcus, has sent a letter to the department store retailer’s board asking it to explore a sale to or merger with Saks Fifth Avenue rather than reorganize under Chapter 11 bankruptcy.
Neiman Marcus, which has negotiated a plan with some of its creditors to shed roughly $4 billion of its approximately $5 billion in debt under a Chapter 11 application filed last week, has been weakened in recent months as extended store closures created by the novel coronavirus outbreak have hit it hard in the top and bottom lines.
Mudrick, which holds a portion of Neiman Marcus’ debt, believes that a combination of the two luxury chains would create between $2.8 billion and $4.7 billion of value for investors and avert the need to reorganize. Neiman Marcus would close at least 22 locations that currently overlap with stores operated by Saks, the theory being that the closures would eliminate cannibalization of sales between the two chains while reducing real estate, employee and other business-related expenses.
This is not the first time that a deal between Neiman Marcus and Saks has been bandied about. In March 2017, Saks’ parent, Hudson’s Bay Company (HBC), explored a deal to acquire Neiman Marcus, which was coming off six straight quarters of declining sales and struggling under its debt load.
At the time some questioned why a combination of the two chains, despite their iconic names, would make sense considering the challenges the businesses faced in reaching younger consumers and growing revenues while continuing to labor under unsustainable debt levels.
HBC was taken private earlier this year by an investors group led by CEO Richard Baker. The $2 billion deal, approved by investors in late February, happened just as the department store operator found itself dealing with the financial consequences of the novel coronavirus pandemic.
Representatives for HBC and Neiman Marcus declined to comment to Reuters, which initially broke the report of Mudrick’s letter.